The NAV is calculated by dividing the value of all securities in the portfolio by the number of outstanding shares, and the market price of an ETF is determined by its underlying shares. Since an ETF’s price is constantly shifting during the day, a price difference may emerge between the price of the ETF and its NAV
Typically, discounts and premiums crop up in closed-end mutual funds when the market price is lower or higher than the net asset value of its component holdings. Consequently, a discount would indicate a pessimistic future outlook for the underlying holdings. [Individual Investors on the Hook for Japan ETF Losses]
While most ETFs typically keep premiums and discounts to a minimum due to arbitrage opportunities, globally oriented ETFs can show discrepancies between their current price and NAVs, especially during more volatile market movements. [Premiums & Discounts]
For more information on Japan, visit our Japan category.
Max Chen contributed to this article.